Informatica Profit Warning Hits Tech Sector Shares

Informatica rattled investors with a warning about worsening business conditions in Europe, sending its shares down over 25 percent.

Software maker Informatica Corp, which counts Allianz, BNY Mellon, Direct Edge and Societe Generale as clients,
rattled investors with a warning about worsening
business conditions in Europe, sending its shares down over 25
percent.

Informatica's software, which is used by many financial services companies to help pull together
data so they can analyze business trends, is used alongside solutions
made by bigger software companies so its weakness often drags
down peers.

But analysts said Informatica's problems may be company
specific, citing an internal sales reorganization, and said
overall tech spending would likely be stable.

Smaller software companies have taken a hit in the last few
months as customers scrutinize deals more closely, signaling a
pullback in tech spending. Informatica warned in June that
business conditions worsened sharply, triggering a 30 percent
drop in its share price.

At the time, the warning led to a big selloff in other tech
firms after investors feared that the European crisis was taking
a higher toll on tech spending than previously understood.

This time around, Evercore analyst Kirk Materne said it may
not be a sign of an overall industry weakness.

Kurt Potter, analyst at research firm Gartner, agreed and
said there was pent-up demand in Europe for IT spending,
especially for data integration.

"All companies are concerned about what's going on in Europe
but for the most part there is optimism," he said, adding that
regardless of some temporary hiccups Gartner expects "solid and
stable" tech spending.

Informatica estimated third-quarter adjusted earnings of 25
cents to 27 cents per share, on revenue of between $189 million
and $191 million for the quarter ended September 30, 2012.

Analysts were expecting earnings of 34 cents per share,
excluding items, on revenue of $200.8 million, according to
Thomson Reuters I/B/E/S.

Informatica closed down 22 percent to $ 26.03 on Thursday.

Chief Executive Sohaib Abbasi said in a statement that the
European revenue shortfall was worse than the company's own
expectations and Informatica was taking aggressive steps to
offset further disappointment from the region.

Europe, the company's second-largest market, brought in a
quarter of its 2011 revenue of $784 million.

Informatica also expects the European revenue shortfall to
cause an increase in its third quarter tax rate which will
reduce earnings by about 2 cents per share in that quarter.

Materne pointed out that Informatica was tackling its
challenges in Europe but that it would take time for changes
have an effect.

Informatica had recently appointed a new global head of
sales, he said, and " 'aggressive steps' are being taken to
address operational challenges".

"But there appears to be no quick fix in terms of improving
operational execution, and we expect INFA's EMEA business could
continue to weigh on results over the next several quarters,"
Materne said.

FBN Securities analyst Shebly Seyrafi struck a similar tone.

"INFA made several sales force changes recently, and it
generally takes a few quarters for these changes to bear fruit,"
he said adding that the company is expected to start shipping
the Hadoop version of its flagship Informatica 9.5 software
soon, which could be an additional catalyst.

The company expects to report its final third-quarter
results on Oct. 25.